Georgia manufacturers experienced lower activity for the fourth consecutive month, falling below the national index for July, according to the Purchasing Managers Index (PMI) released today by Kennesaw State University’s Econometric Center in the Michael J. Coles College of Business.  

Georgia’s July PMI of 49.5 is 2.6 points lower than June and 5 points below its six-month average of 54.5.  A PMI reading below 50 indicates that manufacturing is contracting rather than growing, said Don Sabbarese, director of the Econometric Center and professor of economics at Kennesaw State.  

The July national index increased by 4.5 points to 55.4 due to strong increases in new orders, production, and employment, he added. Georgia’s new orders decreased 15 points and production dropped 10.8 points, to 45.5 each for Georgia manufacturers. Employment fell 2.1 points to 50 and finished inventory increased 4 points to 47.7. 

According to Sabbarese, an increase in the percent of manufacturing respondents reporting lower new orders and production demonstrates an unusual one-month change for this survey.

“Although U.S. manufacturing has been adversely affected in the second quarter of 2013 by slower global growth and sequestration, many expect some improvement from this pattern in the second half of 2013,” Sabbarese said. “That said, manufacturing in Georgia continues to remain flat as we enter the first month of the third quarter, and the survey’s respondents are somewhat less optimistic.” 

This observation is drawn from a survey question that asked respondents about their anticipated production for the next three to six months. The percentage of manufacturers expecting an increase has dropped for the last four months, he added.

Other highlights from the July PMI:

• New orders down 15 points to 45.5, 12.4 points below its six-month average
• Production down 10.8 points to 45.5, 9.6 points below its six-month average
• Employment down 2.1 points to 50, 3.2 points below its six-month average
• Supplier delivery up 11.2 points to 59.1, 6.8 points above its six-month average
• Finished inventory up 4.0 points to 47.7, 6.4 points below its six-month average
• Commodity prices up 4.2 points to 50, 3.1 points below its six-month average

The Georgia PMI provides a snapshot of manufacturing activity in the state, just as the monthly PMI released by the Institute for Supply Management provides a picture of national manufacturing activity. A PMI reading above 50 indicates that manufacturing activity is expanding; a reading below 50 indicates it is contracting.

The Georgia PMI reading is a composite of five variables: new orders, production, employment, supply deliveries and finished inventory. A sixth variable, commodity prices, is compiled by the Coles College’s Econometric Center but does not go into the PMI calculation.

The PMI, compiled from a monthly survey of manufacturers, is the earliest indicator of market conditions in the sector. Since manufacturing, which accounts for 11 percent of GDP, is sensitive to changes in the economy, it can also reveal changing macroeconomic trends. 

The Georgia PMI provides data used by institutions such as the Federal Reserve Bank of Atlanta to assist in its analysis of current economic conditions, along with many other data sources, to get a picture of economic activity.

About Dr. Don Sabbarese

Dr. Donald Sabbarese specializes in the area of macroeconomics and financial institutions at Kennesaw State University. He directs the Georgia Purchasing Managers Survey and other research involving the local economy, such as industry surveys and economic impact studies. His work at the Econometric Center has been reported in the regional and national media. He is a frequent speaker to business and civic groups and has contributed to local magazines and other news media outlets. Dr. Sabbarese has testified before Georgia legislative committees on matters related to bank legislation.